Former Koss employee in talks to settle SEC case

A year and a half after the embezzlement of $34 million from Koss Corp. was discovered, former accounting employee Julie Mulvaney is negotiating with the Securities and Exchange Commission to settle the regulatory agency's case against her. Mulvaney was an assistant to Sujata "Sue" Sachdeva, former vice president of finance at Koss.

Sachdeva is serving an 11-year prison term at the Federal Correctional Institution in Danbury, Conn. Mulvaney was not charged with any crime but is fighting a lawsuit against her and Sachdeva in federal court in Milwaukee. Sachdeva has settled with the SEC.

In papers filed in court Wednesday, Mulvaney's attorney asks for more time for the case, while at the same time attempting to reach a financial settlement with the SEC.

Mulvaney's attorney, David F. Loeffler, plans to depose Sachdeva; Chief Executive Officer Michael Koss; Chairman John Koss; current Chief Financial Officer David Smith, who was hired after Sachdeva was fired; members of the Koss board of directors; and other Koss managers and accounting department employees.

Federal Judge Rudolph Randa has ordered that Sachdeva be deposed in prison, but the session has yet to be scheduled.

Koss' $34 million loss first came to light in December 2009, when American Express notified the company that Sachdeva was paying her personal credit card bills with money from the company. Sachdeva stole the money over a period of at least six years, with the amount taken escalating over time.

Mulvaney is accused in court documents of assisting Sachdeva in hiding the illegal transactions. The SEC complaint says she maintained a binder referred to in the complaint as "the red book." There, according to the complaint, Mulvaney wrote down the false entries she was making in the company's records.

The complaint says she also prepared falsified accounting books and records and maintained them in a series of colored folders referred to as the "rainbow files." The files were green, orange, blue or yellow, depending on the year, and included more than 100 fraudulent transactions, the complaint says.

According to a document filed this week, Mulvaney has hired forensic accountant Tracy Coenen to help with her defense.

The extensions sought by Mulvaney's attorney would push the case into July 2012, unless she settles with the SEC before that.